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Meet the Farm Bill Cliff

While most of the country is focused on the fiscal cliff, The New York Times is reporting on another cliff, this one involving the farm bill. Unlike the fiscal cliff, this one involves policies that will increase spending and deficits. If Congress is unable to agree on a farm bill before the end of the year, we would revert back to 1949 law, the last time the government made a permanent farm law. As a result, Washington would be required to purchase milk at more than twice the current market price to set a price floor for producers.

According to the article, milk prices are estimated to double as a result of the price floor. Producers are not happy about this because even though they will benefit significantly from the government's purchases, the hit to consumer demand would be huge. Obviously, consumers would lose big as well and the government would have to increase spending unnecessarily. It's a situation that no one wants. One interesting side note -- if we go over both the fiscal cliff and the farm cliff, the sequester will cut farm programs across the board by about eight percent. It's unclear how this interaction would affect the milk program, but it could dampen some of the negative effects.

So where are we with the farm bill? The Senate passed a farm bill in June that would save $23 billion. The House has not yet brought the farm bill to the floor, but one version that would save $35 billion passed the Agriculture Committee later this summer. Both bills would replace direct payments with a shallow loss program, which would guarantee farmers a certain amount of gross revenue. Although the two bills have slight differences in the design of this new crop insurance program, the combined effect of these policies would save roughly $20 billion over the next decade. One major difference between the two bills is in nutrition programs. In particular, the House Agriculture Committee version restricts categorical eligibility in food stamps--where recipients of benefits in other low-income programs automatically qualify for the program--to cash assistance programs only, saving an additional $12 billion over the Senate version. Overall, these bills are a step in the right direction, but more savings could be gotten in farm programs, and lawmakers should be vigilant that the shallow loss programs do not become overly expensive.

Ten-Year Savings/Costs (-) in the Farm Bills (billions)

Senate

House

Commodity Programs

$19

$23

Conservation Programs

$6

$6

Crop Insurance Programs

-$5

-$10

Other

-$2

-$1

Subtotal, Farm Programs

$19

$19

Nutrition Programs

$4

$16

Total

$23

$35

Source: CBO

Ultimately, the change to food stamps is a major barrier to passage. The measure is seemingly unable to pass the House because Democrats object to those changes, and enough Republicans object to the level of spending in the bill that it cannot pass on strict party lines. House Speaker John Boehner (R-OH) has said that he would not include the farm bill in a fiscal cliff deal, another barrier to its passage. Given the focus on that deal and the limited time until the end of the year, a farm bill will probably not pass in the remaining days of this Congress. That leaves the liklihood of a stop-gap measure for the milk program, thereby pushing off the farm bill to the new Congress and adding it to the growing list of to-do items.